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"AS the move to the next generation of telecommunications brings more choice and lower prices, we need a regulatory approach that encourages investment and innovation in the infrastructure and services of the future."
With that statement last month, Stephen Carter, chief executive of Ofcom, the UK's communications regulator, identified an urgent challenge for policymakers everywhere. The problem is how to realise the internet's full potential and let its magic drive productivity gains, competitive advantage and social welfare around the world.
Today the critical internet battleground is broadband -- the ability to provide, at any time and place, access to online data at a rate of up to 100 megabits per second per household and 10,000 megabits per second per business. At broadband speeds, the net becomes the primary means of distributing all sorts of content. Only by extending broadband to all -- including the disadvantaged and the distant -- can the internet's economic and social benefits (through productivity improvements, say, or distribution of educational resources) be maximised.
Achieving this goal is the dream of nearly every country in the world, yet many telecoms and cable companies lack the necessary economic incentives. By the end of the year, only about 20 per cent of European homes and 35 per cent of American homes will have broadband subscriptions. The crucial question for policymakers is how to increase these figures.
The trouble is that the current regulatory regimes in almost every country -- based as they are on the 1997 World Trade Organisation telecoms treaty focus on yesterday's concerns: privatisation in the 1980s and market liberalisation in the 1990s. In both cases the main subject of regulation was the voice industry, not broadband.
Policymakers must be clear that establishing universal broadband networks raises a new set of issues. For example, should the physical media of broadband, whether cables or allocations of electromagnetic spectrum, be funded by public money? To a significant degree, public funding has been the answer in South Korea, the world's broadband leader. But that answer is unacceptable in the US, in part for, teasons of ideology but also because some think public funding would undercut private funding of broadband net works. Another question is whether broadband networks should be "open". The answer to that depends on your definition of what "open" means. There are at least five main possibilities here: network providers selling wholesale access to the physical network; open sharing of communications software protocols; obliging the network provider to charge the same price to all content-providers; connecting all networks to each other (domestically and internationally); and including every citizen in the network's reach. No regulatory body has yet worked out a comprehensive solution to these issues.
For investors, one set of answers will do more to stimulate investment than another. But no answers at all will certainly be a deterrent.
At the same time, no nation is taking the lead in developing a coherent international broadband policy, There is no movement to a common global allocation of spectrum for wireless broadband, for instance. Yet communications is one area where there is a real opportunity for the US and Europe to convene an international forum that would articulate a rule of law for broadband technologies. In the US, politicians are considering revisions to the ground-breaking 1996 Telecommunications Act; and in the European Union, member states and the Commission are conscious of the importance of broadband as they review the Lisbon agenda for becoming "the world's most competitive, knowledge-based economy". A multilateral solution would bring benefits on both sides of the Atlantic.
What is needed is a new, treaty-based WTO approach to the problem. It would set out a framework covering such matters as a precise definition of universal broadband service and appropriate timetables and targets. National and regional measures would follow to ensure public or private funding and oversee implementation.
The internet's capacity to connect has the potential to transform economies and societies for the better. Unless policymakers manage to connect with each other, however, that potential will never be unleashed.
(Reed Hundt, chairman of the US Federal Communications Commission from 1993 to 1997, is an adviser to McKinsey. Scott Beardsley is a director in McKinsey's Brussels office.
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FT Syndication Service
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